become a global financial centre?
Abu Dhabi is well positioned to be a key banking centre in the Middle East, but it faces challenges in its quest to become an international financial services hub, according to speakers at the Meed Abu Dhabi Conference 2007.
Revenues in the Middle East banking industry have been growing at unprecedented levels in recent years. In the UAE alone, the growth rate of banking has been 35 per cent higher than the growth rate of GDP.
In 10 years, revenue from banking and insurance products in the Middle East will be $20bn, double what it is today, said Dr Sven-Olaf Vathje, a partner with Boston Consulting Group.
Being a financial centre can offer significant advantages for the local economy in terms of creating jobs and revenue. In New York, for example, 500,000 people work in the financial services industry, representing 15 per cent of the local workforce.
Revenue from financial services also represents about 15 per cent of New York’s GDP. These GDP numbers are consistent in other financial centres, like Singapore or Frankfurt, Vathje noted.
So what are the keys to being a financial centre? First of all, a financial centre needs to have a uniqueness about it to differentiate itself from other centres. One example would be Luxembourg, which has achieved a critical mass in the area of investment banking.
There also needs to be an environment that is conducive to doing a financial services business. That means having an adequate supply of talented workers who can serve the needs of the financial services companies. There also needs to be a market structure that is beneficial to financial services, including modern regulatory standards that are in line with international standards.
Finally, the cost of setting up a financial services operation needs to be reasonable in order to attract international businesses, and the centre itself needs to develop a favorable international reputation in order to attract the right sectors, said Vathje.
Challenges lie ahead
The UAE suffers from a perception in some circles that it has an insufficient pool of talented workers in the financial services sector. In one case, Germany’s Allianz Group, one of the world’s leading insurers and financial services providers, chose to launch a life insurance subsidiary in Bahrain because it believed that the UAE lacked a sufficient labour pool.
Some of the specific areas where the UAE’s labour market is weakest are risk management and insurance.
The cost of living is also becoming an issue in the UAE. While the country is still largely viewed as an attractive place to live, its rising inflation is becoming a growing concern for expats thinking of relocating to the region. It is also becoming more expensive for companies to establish their operations in the emirate.
RBS Chooses Abu Dhabi
The Royal Bank of Scotland chose to centralise its regional operations in Abu Dhabi after doing an extensive study of possible locations throughout the region, according to Robert Garden, Regional Managing Director Global Banking for RBS.
One of the key factors in its decision was that project finance in Abu Dhabi has been a huge market for the bank. Also, the cost of setting up operations in the emirate was relatively cheap, partly because the bank made a favorable deal with the National Bank of Abu Dhabi to use space in of its buildings.
RBS found that the talent pool in Abu Dhabi was strong, although there is a high degree of ‘CV inflation’ that occurs in the emirate, Garden pointed out. However, operating costs are becoming a concern for the bank. It is planning to hire and train more local talent to replace expats who are much more expensive to employ.
Can Abu Dhabi compete with Dubai as an international financial centre? ‘The important thing to consider when comparing the two centres is not how they compete with each other, but how they complement each other,’ said Mahmood Al Aradi, General Manager-Financial Markets Group for the National Bank Abu Dhabi.
Each centre has its own strengths. For example, Dubai is strong in mergers and acquisitions, while Abu Dhabi is strong in project finance.
‘Look at Singapore and Hong Kong. Both are huge international financial centres that are very close in proximity but are still able to thrive,’ Aradi said..